Scandic Hotels Group said that it was turning to students and coworking to drive additional revenue.
The company, which was reporting third-quarter results, said that it expected recovery to be “slow”.
Scandic has recently introduced a number of commercial initiatives including the launch of a coworking concept, a student housing offering and improved terms and conditions for loyalty members.
Jens Mathiesen, president & CEO, told analysts: Coworking has had a good start and we have had a lot of companies asking to come in, not only day to day, but for a period of time when they don’t want to travel into offices. They also rent meeting rooms, some them even use rooms to stay overnight. It brings new business to the hotels and we think it will be here even after the pandemic.”
The group has also been negotiating with its landlords, with Mathiesen commenting: “The coronavirus crisis will have a long-term impact on the hotel industry, and it will be several years before occupancy returns to the level prior to the pandemic. Our leases must therefore ensure profitability at lower occupancy levels and provide a balanced risk sharing during periods of low demand. Today, some hotels, especially in the big cities, have rent costs that exceeds their revenues, which is unreasonable.
“We are now intensifying negotiations with our landlords and will therefore reduce rent payments until new terms have been reached.”
Scandic recently signed an agreement with property owner Arlandastad Holding regarding a 15-year lease agreement for the former First Hotel Arlanda at Stockholm Arlanda Airport. The hotel was built in 2015 but has been closed in recent months following the bankruptcy of the hotel operator First Hotels. Scandic expects to open the hotel on 10 January 2021 under the name Scandic Arlandastad.
The deal was signed with a variable rent that, the CEO said, “provides a balanced risk distribution between us and the landlord. I’m certain we will see more agreements with a similar structure going forward”.
Looking to the group’s pipeline, Mathiesen said: “It is mostly turnover-based leases with guarantees which have been signed in recent years. It is not good for us or the owner to open in a locked-down market if we can wait a few months and have it open in a stronger market. We have seen competitors’ delay opening and we are looking to do so too.”
At the end of the period, Scandic had 53,129 rooms in operation at 268 hotels, of which 244 were operated under lease agreements. Approximately 15% of Scandic’s lease agreements will expire by the end of 2022, with approximately 25% before the end of 2025. The average duration of Scandic’s lease contracts was approximately 11 years.
At the end of the period, Scandic’s pipeline included 14 hotels with 5,092 rooms, corresponding to 9.6% of the current hotel portfolio. The number of hotel rooms in the pipeline decreased by 603 during the quarter due to uncertainty about implementation of certain projects.
In the third quarter Scandic’s adjusted Ebitda improved compared with the previous quarter, increasing to a slight positive result, supported by low operating costs and government support, reaching Skr90m, against Skr823m in the third quarter 2019. Occupancy was 36%, down from 75.5% in the same period last year. At the end of the quarter, Scandic’s available liquidity amounted to around Skr3.2bn including credit commitments.
In October, average occupancy in the Nordic countries was largely in line with September. Occupancy improved in Sweden and Norway compared to the previous month while Finland, Denmark and Germany were been impacted negatively by stricter restrictions from authorities.
Insight: Scandic was one of the hotel companies identified at the beginning of the pandemic as most likely to fail and stagger it indeed did, but not fall. The company has instead been renegotiating its agreements and finding that owners are responsive and pragmatic.
There are hopes that in looking to Scandic’s so-far-success with shared risk, others will be able to follow and hold onto their hotels.
Not too many though - as we see at Arlanda, Scandic is eager to mop up after casualties, just like everyone else.